Committee for the Abolition of Illegitimate Debt

During the 5^th World Social Forum in Porto Alegre in January 2005 we, the various movements and networks who work internationally on the debt, met three times and held some very fruitful discussions. The present situation means it is especially important that all activists and networks without exclusion who are working towards debt cancellation in “developing countries” and to end structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/ policies, be engaged in discussion together. During these debates we must try to launch a new joint worldwide campaign on the question of the debt.
The meeting in Havana, which will take place from 28 to 30 September 2005, is an important chance which we must use constructively.

The present situation

1) Over the last few years, the developing countries, taken as a single whole, have accumulated foreign reserve assets worth more than US $1600.000.000.000. This sum is greater than their total external public debt. In fact, as the latest World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

report admits [1], the developing countries as a group are net creditors and net capital exporters.
And yet the external debt does not go down. The populations continue to suffer deeply from the effects of the debt and structural adjustments.

2) The individuals who have recently been appointed at the head of both the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org and the World Bank are among the most aggressive defenders of neoliberal policies. The same is true of other institutions such as UNICEF, UNCTAD UNCTAD
United Nations Conference on Trade and Development This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

, WTO WTO
World Trade Organisation The WTO, founded on 1^st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

, etc.

3) Argentina has shown that it is possible for a country to stand up to its private creditors (even though the Argentinean government should have put up an even stronger resistance to its creditors and of course to the World Bank and the IMF.

4) 10 years on, the HIPC Heavily Indebted Poor Countries
HIPC In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia. initiative has not solved the debt problem of the countries it has been applied to. On the contrary it has made their situation worse through its reinforced Structural Adjustment Programmes.

5). A new debt crisis could affect a series of countries in the coming years due to a rise in interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. combined with a possible drop in the prices of raw materials (in fact a replay of the 1979-1982 scenario)

Questions for the activists and networks of the South and the North :

 Do we agree on demanding total cancellation of the external public debt of all the developing countries?
 Do we agree to refuse conditionality imposed by the creditors?
 Do we agree to support the DCs who stop repaying debts?
 Do we agree to support countries who decide to break agreements with the IMF and the World Bank?
 Do we agree to support debt audits, whether they are instigated by civil society, the authorities or both?
 Do we agree to demand reparation for the historical debt and the environmental debt, owed by the North to the South.

On the 10 June 2005, the following organisations Jubilee South, Afrodad, Kairos Canada, Halifax Initiative Canada, 50 Years is Enough (USA), Jubilee USA, Campagna per la Riforma de la Banca Mondiale (CRBM - Italy), Comité pour l’Annulation de la Dette du Tiers Monde (CADTM), Slug (Norway) agreed on a joint communiqué which ended on demands which would make a starting point for a new joint worldwide campaign.

The cancellation in full of the debts of all South countries, starting with the most impoverished and countries in crisis. Debt service Debt service The sum of the interests and the amortization of the capital borrowed. cancellation over 10 years is not enough since come 2015, around 70% of poor country debt will still remain on the books [2].

This cancellation to be carried out in such a way that governments have more money to spend on their peoples’ welfare. This implies that money be taken from the multilaterals’ reserves and extra contributions from Northern governments [3].

This cancellation should be unconditional.

Creditors to recognise their co-responsibility for odious debts.

The international architecture governing debt and finance to be fundamentally overhauled so that debtors and creditors are placed on an equal footing.

South/North Civil Society Debt Group

The South/North civil society working group on debt is composed of networks and organisations across the globe working for social justice and a lasting solution to the debt crisis. It was established at the Global IFI strategy meeting in Accra, Ghana, February 2005.

Members: Jubilee South, Afrodad, Kairos Canada, Halifax Initiative Canada, 50 Years is Enough (USA), Jubilee USA, Campagna per la Riforma de la Banca Mondiale (CRBM - Italy), Comité pour l’ Annulation de la Dette du Tiers Monde (CADTM), Slug (Norway)” see www.eurodad.org

We could use the above statement as a starting point and improve on it during the Havana meeting.

We would like to see explicitly added that:

1) We reject neoliberal policies (we refuse privatisations, reject policies which expect that all costs should be recuperated from the people; especially concerning services such as public health, education, water supplies etc. we refuse increases in VAT and other indirect taxation, reject the Doha agenda, etc.) and we demand governance which places human rights at the centre of its policies.

2) we will support countries who stop servicing debt and who invest in welfare.

3) we demand that the social, historical and environmental debt be taken into account.
The necessity of debt audits also need to be clearly stated.

This is an initial list to be corrected and completed.